Hemel: The Low And High Stakes Of Moore

Daniel J. Hemel (NYU: Google Scholar), The Low and High Stakes of Moore, 180 Tax Notes Fed. 563 (July 24, 2023):

Moore, the challenge to the constitutionality of the mandatory repatriation tax slated for argument at the Supreme Court next term, looks at first glance like a battle between two different definitions of income.

On one side, petitioners Charles and Kathleen Moore — cheered on by the Chamber of Commerce and the Wall Street Journal editorial board — argue that, for 16th Amendment purposes, “income” requires a realization event such as the receipt of money or an exchange of property. That theory, if it prevails, would cast doubt on numerous code provisions ranging from the original issue discount rules to the mark-to-market regime for regulated futures contracts.

On the other side, the solicitor general argues that the 16th Amendment allows Congress to tax income on a realization basis and an accrual basis, with both types of taxes passing constitutional muster. That view has represented the conventional wisdom among tax scholars for decades, though the Supreme Court has never endorsed it in as many words.

But there is more to Moore than meets the eye.

Even if the Moores persuade the Court that the 16th Amendment embeds a realization requirement, the petitioners won’t necessarily prevail on their refund claim — the justices could hold that income taxation requires realization and that the mandatory repatriation tax satisfies that requirement, though many other code provisions might not.

Inversely, even if the justices agree with the government that the 16th Amendment authorizes accrual-based as well as realization-based taxation, the Moores might still win their case: The Court could hold that the 16th Amendment allows an accrual tax like an annual mark-to-market income tax but that the mandatory repatriation tax, because of its unusually long temporal reach, lies outside Congress’s 16th Amendment power.

The upshot is that for almost everyone except the Moores themselves, the outcome in the case matters less than the reasoning that the justices embrace. A win for the government may turn out to be a Pyrrhic victory for proponents of expansive congressional power under the 16th Amendment. And a win for the Moores on a narrow theory of the case might leave Congress’s taxing power largely intact.

Prior TaxProf Blog coverage:

• Reuven Avi-Yonah (Michigan), If Moore Is Reversed, 179 Tax Notes Fed. 2215 (June 26, 2023)
• John Brooks (Fordham) & David Gamage (Indiana-Maurer), Moore v. United States And The Original Meaning Of Income (June 27, 2023)
• Christopher Cox (Former Rep. (1989-2005) & SEC Chair (2005-2009)) & Hank Adler (Chapman), The Ninth Circuit Upholds A Wealth Tax (Jan. 30, 2023)